Reuters – Fidelity Investments, a creditor of Energy Future Holdings Corp, has hired advisers to propose a restructuring plan for the Texas utility in the hope of saving it from a protracted bankruptcy, according to three people close to the matter.
Fidelity, which has amassed EFH bonds, is working on a proposal it aims to present this month, the people told Reuters, declining to be named because the information is not public.
EFH, saddled with $40 billion of debt, wants to finalize a restructuring plan before $250 million worth of bond payments are due on Nov. 1. Filing for bankruptcy before Nov. 1 would suspend the bond payments; but filing without a restructuring plan could entail years of battles and competing restructuring plans in bankruptcy court.
Dispute among stakeholders over how to divide EFH equity makes that deadline unlikely to be met, prompting Fidelity to take steps toward crafting its own plan.
Fidelity does not intend any proposal to necessarily compete with those already on the table. With sizable holdings on both the regulated and unregulated sides of EFH’s capital structure, Fidelity may want to propose a plan that strikes a compromise, two of the people said.
Fidelity has hired financial advisers from Perella Weinberg Partners and restructuring lawyers from Fried Frank Harris Shriver & Jacobson, the three people said.
A spokeswoman for Parella Weinberg declined to comment. A spokeswoman for Fried Frank did not immediately respond to requests for comment on Tuesday evening.
EFH’s capital structure includes more than $32 billion of debt split up into various categories at the holding company of its unregulated retail and merchant power units, and another $7.7 billion in senior and junior debt at Energy Future Intermediate Holding Company LLC (EFIH), the parent of its regulated power distribution business, Oncor Electric Delivery Company.
Fidelity’s holdings consist of various EFIH secured bonds, according to company disclosures and analysts, some of which include terms that make it costly for EFH to refinance them. Fidelity has not disclosed the exact amount of its EFH holdings.
EFH declined to comment on Tuesday.
NON-DISCLOSURE AGREEMENTS EXTENDED
EFH, formerly TXU Corp, was taken private in 2007 in a $45 billion buyout, the largest-ever leveraged buyout. The deal saddled the company with debt just before a major decline in natural gas prices and energy markets.
The buyout consortium included private equity firms KKR & Co LP, TPG Capital Management LP and Goldman Sachs Group Inc’s private equity arm.
EFH’s larger creditors have signed extensions of non-disclosure agreements that will allow them to continue discussing possible restructuring scenarios, said two of the people close to the matter. Initial NDAs would have expired on Sept. 27, the people said, without elaborating on the new expiration date.
So far, talks have been unsuccessful, and have included many constituents. Equity sponsors hope for a deal with EFH’s secured lenders that allows them to retain an equity stake, but the lenders have insisted that any deal must also address the debt held by unsecured bondholders of EFIH, several people close to the matter told Reuters last month.
The lenders have offered those bondholders 9 percent of the restructured company, which the bondholders rejected last month. According to two people close to the matter, one option the sides have discussed to sweeten the pot for the bondholders was the inclusion of a so-called contingency value right, which would increase bondholders’ payout if EFH meets certain performance goals.
Several sources close to the discussions have told Reuters a deal to avoid bankruptcy is unlikely. Even a pre-negotiated bankruptcy – in which sides agree to a basic framework before filing for Chapter 11 – would be difficult to achieve by the Nov. 1 bond payment date, the people said.
EFH could elect to make its Nov. 1 payment and extend talks, but the company would like to resolve its debt issues sooner rather than later, said the people close to the matter.
EFH on Monday paid roughly $60 million to second-lien bondholders on its unregulated side, the people said. Companies close to bankruptcy often miss bond payments. This payment – a drop in the bucket for the enormous EFH – was expected, the people said.